Creating Business Value

...A new look on

Foreword

To effectuate has special importance for situations where the future is truly unknowable or human agency is of primary importance.

• non-predictive control for creating new firms, markets and economic opportunities.

• cognitive science and behavioral economics to develop the notion of entrepreneurial expertise and effectuation.

• 27 entrepreneurs as well as other independent studies.

• traces the consequences of effectuation for business management, economics and social philosophy.

• effectuators generate constraint-satisfying solutions rather than searching for optimal ones, make rather than find opportunities, and in a deep sense, convert 'as-if' propositions into 'even-if' ones.

• behavioral and evolutionary economics, cognitive science, marketing, applied psychology, sociology, business ethics, social philosophy, public policy, anthropology and political science.

- the creative process in general
- entrepreneurship in particular


The central questions:




Entrepreneurs, and others who create, face three types of uncertainty:

(1) Knightian uncertainty
(the probability distributions and even outcomes are unknown, making it impossible to calculate probabilities or expected consequences);

(2) goal ambiguity
(preferences are neither given nor well ordered); and

(3) isotropy
(it is not clear which elements of the environment to pay attention to and which to ignore).


Someone thinking about creating the first overnight package delivery service or a restaurant with a new type of food faces these three types of uncertainty. She has insufficient data and information to know the number of likely customers or their willingness to pay for the service. The innovator doesn’t know what customers are looking for.

She probably doesn’t even know her own preferences, apart from wanting the business to succeed.

Asking prospective customers what they would like is about as useful as looking through their garbage cans to see what they didn’t eat.

People have very different conceptions and desires.
What is important?
Which ideas are most likely to lead to a successful business?

In taking verbal protocols while asking successful entrepreneurs to work through making a proposed business idea a success, we discovered that all were ‘effectuators’ who limited their search and analysis in taking one step at a time.

We distinguish this approach from an analytic, maximizing approach:




There are many insights about the creative process.
Discovering the innovative way that characterizes the entrepreneurial function.

Preface

Effectuation is a refreshingly new look at the old phenomenon of entrepreneurship.

It is based on a beautiful narrative, profound theory, a deep and visceral understanding of the entrepreneurship phenomenon, and everyday facts and events; and it is eminently practical.

Core to effectuation is the idea that rather than discover and exploit opportunities that pre-exist in the world, the effectual entrepreneur is one who ‘fabricates’ opportunities from the mundane realities of her life and value systems.

Entrepreneurs fabricate opportunities by starting with

- who they are,
- what they know, and
- whom they know

– in short, all someone needs to create an entrepreneurial legacy in this world is to begin with their

- intellectual capital,
- human capital and
- social capital.

At once liberating and practical, this simple idea forms the foundation for a beautiful theory of the ‘made’ world rather than the ‘found’ world that populates much of the textbooks and journal pages of the entrepreneurship literature.

The effectuation concept does not sell entrepreneurship short by interpreting it as a prosaic activity of starting a new business venture for a commercial activity. Rather, it breathtakingly announces that since all markets are ultimately markets in human hope, and since all economic value ultimately derives from human beings, any activity that involves the design and creation of products, services, institutions and other human artifacts that addresses this human hope and value falls within the sphere of effectual entrepreneurship.


Two building blocks:
the science of the artificial (which, in the context of entrepreneurship, she relabels science of the artifactual) and pragmatism.

The study of entrepreneurship as an artifactual science allows us to ask design-oriented questions rather than ‘why’ questions or ‘explain (immutable) dependence relationships’ that are so characteristic of the natural sciences and even many social sciences that aim to mimic natural sciences.

Thus our focus shifts from asking,
‘why do some people become entrepreneurs?’ to
‘what are the barriers to entrepreneurship?’

Similarly, the question that most MBA entrepreneurship programs focus on, namely,
‘How do I become a successful entrepreneur?’
is replaced in the effectual world by
‘Given who I am, what I know, and whom I know, what kind of entrepreneur could I become;
what kind of entrepreneurial activities could I pursue; and
what kind of enterprises could I create?’

Designing and principles of design and designing then become integral to entrepreneurship.

The pragmatist method.
The pragmatist approach allows one to develop design principles for fabricating human artifacts through the entrepreneurial process. What is a firm (or for that matter a market) if not a human artifact?

How we think about the world influences how we frame problems,
what alternatives we perceive and generate;
which constraints we accept, reject, and/or manipulate and how; and
why we heed certain criteria rather than others in fabricating and implementing new solutions.








This is the end of the file.

TEDxMidAtlantic
Saras Sarasvathy
2010-11-05

Notes:

the luck hypothesis
teach entrepreneurship
the entrepreneurial method
they hate market research; they are suspicious of predictive information
classic thought: If we can predict the future we can control it.
flip it: What we can control we don't need to predict
How do you control a future you cannot predict?
The standard model: persist
- try to sell people on why it's such a great product
do research and come out with a target segment
the expert entrepreneur
- like control over their result
to co-create the product with customers
building the corridors
casestudy: microfinance
he got a lot of pushback
- the poor are unbankable

Review:

Not recommended to watch.
More of a motivation speech than a techniques or tactics speech.
Mostly abstract, virtually no specifics. Came away with nothing